Revenue Recognition Principle

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Revenue Recognition Principle

Businesses must recognize income during the time period in which the work is performed.

John received a check for $500 in March to do Mary’s taxes. The tax return was completed in April. The $500 goes on the income statement in April because that is when the work was done. John did Henry’s taxes in April and sent Henry a bill for $450. Henry paid his bill in May. The $450 goes on John’s April Income statement because that is the month when the work was done. It doesn’t matter when you got the money; the income is recognized when you completed the work.

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